Millennials and gen Z are often lauded as more socially and environmentally conscious investors, at least in comparison to older people. But we’re no angels. The data suggests we’re increasingly attracted to so-called ‘meme stocks’ like Tesla, with its questionable governance, and energy-intensive cryptocurrencies like Bitcoin.
Many young people eschew traditional advice like ‘spread your risks’, ‘invest for the long term’ and ‘look at the fundamentals’. They’re liable to jump on bandwagons, triggered by social media’s lightning speed and enfants terrible like Elon Musk, who can make or break fortunes with a tweet. Research by the Financial Conduct Authority last month found beginner investors are far more likely to follow trends, their gut feeling and cocky influencers, rather than conventional investing wisdom.
The traditional financial sector is starting to worry that the next generation is being lost to get-rich-quick schemes, and a gambling mentality. I share that concern. But we need to understand the young investing phenomenon, rather than rush to judgement.
Firstly, who can blame young people for chasing high returns? Given the rough economic deal they had even before Covid came along, with quantitative easing enriching older, home-owning citizens at the expense of young renters, no wonder young people look at dire savings rates and want to do better. They feel investing offers a chance to grow their money in real terms. Their instinct is spot-on – they just need to channel it in a more sensible way.
And to be fair, we don’t teach young people about investing and pensions. That’s why I wrote my new book – to educate a generation curious about the stock-market. Otherwise, young people, priced out of financial advice, will simply go online to get their information, often from snake oil salesmen telling them what they want to hear.
We will all make mistakes in our investing journey. What matters is learning from them. But we also need to equip young people with the information that will enable them to spot scams and evolve into patient, thoughtful investors.
If you’re starting out, look for ways to manage your risks, such as through diversification. Only invest directly in companies if you can commit to the research. Once you have put together your portfolio, leave it alone, save for some rebalancing and profit-taking here and there. If something sounds too good to be true, it is.
Learn how to manage your investing brain. Over-trading, exposure to one or two volatile assets, panic when markets fall…all this can lead to serious problems, both financial and mental. Research has shown traders who experience big losses early in their career have symptoms of post-traumatic stress disorder.
The young investing revolution is to be welcomed. But we need to give young people better help and guidance so they don’t have to learn about the realities of investing the hard way.
Iona Bain is the co-founder of the Young Money Agency and author of Own It! How our generation can invest our way to a better future